Item 1. BUSINESS
Glen Rose Petroleum Corporation is a Delaware corporation formed in 2008. The Company was
previously United Heritage Corporation, a Utah corporation that was formed in 1981 and was
reincorporated in Delaware in 2008. The reincorporation entailed a reincorporation merger agreement
between Glen Rose Petroleum Company and United Heritage Corporation, but there were no substantive
changes in assets or personnel and we also have continuous financial reporting through the
reincorporation. We are an independent producer of natural gas and crude oil based in Dallas,
Texas. We operate our business through our wholly owned subsidiaries, UHC Petroleum Corporation
(“Petroleum”), and UHC Petroleum Services Corporation (“Services”), which are sometimes
collectively referred to in this report as the “subsidiaries.” Our other subsidiaries are UHC New
Mexico Corporation and National Heritage Sales Corporation, which formerly sold food products. UHC
New Mexico Corporation and National Heritage Sales Corporation are no longer operating.
Subsequent Events to the year ended March 31, 2008
With the successful conclusion of the 14C: the Company
| • | Glen Rose Petroleum Corporation was incorporated in Delaware exclusively for the
purpose of entering into a Reincorporation Merger Agreement with United Heritage which
provides that Glen Rose will be the surviving corporation, and will assume all of our
assets and liabilities, including obligations under our outstanding indebtedness and
contracts. United Heritage Corporation will cease to exist as a corporate entity. Its
board of directors and our officers will become the board of directors and officers of
Glen Rose for identical terms of office. Its subsidiaries will become the subsidiaries of
Glen Rose. |
In addition, the Company reported:
| • | In January 2008 our board of directors resolved to raise funds for our operations
through an offering made to accredited investors. We sold a total of 666,667 shares of our
common stock at a price of $0.75 per share for gross proceeds of $500,000. |
||
| • | The Company had option agreements to ex-employees and directors which exercised at
$1.50 and $2.91 exercise prices. These options were modified to extend the expiration date
to March 31, 2009, to add a put feature where the option holder can put the option back to
the Company for the difference between $4.00 per share and the purchase price between April
1, 2008 and April 10, 2008, and to add a call feature whereby the Company can call the
option for the difference between $7.50 and the purchase price. Since the put feature does
not subject the holder to the normal risks of share ownership, the options the Company has
classified the put options as liability awards and recorded at fair value. A liability and
corresponding expense of $2,727,186 has been recorded in the prior financial statements. A
majority of these option puts were exercised. The Company offered the option put holders
the same conversion as Walter Mize elected on January 16, 2008. On July 3, 2008, owners of
approximately 54% of these options elected to convert the Company’s put obligation to
restricted common stock at $0.75 per share, subject to a voting trust and first right of
refusal to Blackwood Ventures LLC. Approximately 41% elected to continue the option period
until December 31, 2009, for consideration of 10% per annum, payable quarterly with a
provision for payment in kind. Approximately 5% did not make an election and their units
are held as current liability pending resolution. These transactions have not closed, and
are contingent upon the completion of the definitive agreements. Should these transactions
close, the Company’s liabilities would be reduced by $1,166,669 using the values as of
March 31, 2008. |
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| • | May 27, 2008, the Company signed a letter of intent (‘LOI’), to sell for $2.5 million a
50% interest in 2,560 acres (25%) of its Wardlaw Field to Wind Hydrogen Limited (‘WHL’), a
publicly-listed company on the Australian Stock Exchange (‘ASX’). The Wardlaw lease is a
10,502 gross acre field located in Edwards County, Texas. The WHL joint venture is subject
to the respective Parties’ satisfactory due diligence, signing of definitive agreements,
board approval and WHL shareholder approval. In addition, WHL has purchased two options to
expand the venture for 2,560 acres each. The WHL joint venture has received WHL shareholder
approval, preliminary due diligence is completed, and signing of a definitive Participation
Agreements is contemplated by the end of July. |
||
| • | On May 23, 2008, the Company entered into an Agreement to Convert Debt with Richardson
& Patel, LLP pursuant to which Richardson & Patel LLP agreed to accept 205,349 shares of
our common stock in full payment for legal services previously rendered through for the
first quarter of the calendar year. The debt was converted at the rate of $0.85 per share.
On May 23, 2008, the closing price of our common stock was $0.98. |
Material Events during the Fiscal Year
Control Purchased by Blackwood Ventures, LLC.
On September 26, 2007 Mr. Walter G. Mize, formerly our largest shareholder, entered into a Restated
Stock Sale Agreement which was effective as of September 18, 2007 pursuant to which Blackwood
Ventures, LLC (“BVL”) purchased from Mr. Mize (i) 3,759,999 shares of our common stock, (ii) a
warrant for the purchase of 953,333 shares of our common stock at an exercise price of $3.15 per
share, (iii) a warrant for the purchase of 1,000,000 shares of our common stock at an exercise
price of $3.36 per share, and (iv) a warrant for the purchase of 953,333 shares of our common stock
at an exercise price of $3.75 per share. The purchase price for the securities was $5,017,000. BVL
purchased the securities by transferring to Mr. Mize $375,000 in cash and two promissory notes, one
in the face amount of $3,767,000 and the second in the face amount of $875,000. The funds
transferred to Mr. Mize from BVL to purchase the securities were Blackwood’s personal funds. The
members of BVL are Blackwood Capital Limited (“BCL”), DK True Energy Development Ltd., Emes Capital
Partners LLC, Rabbi Tzvi Eichen, Berg Family Trust, Howard Berg Defined Benefit Plan, Howard Berg
and Avi Masliansky. The managing members of BVL are DK True Energy Development Ltd., Emes Capital
Partners LLC and BCL. Dr. David Kahn controls DK True Energy Development Ltd.
On December 19, 2007, the Company entered into an Agreement to Convert Debt with BVL, our largest
shareholder, pursuant to which BVL agreed to accept (i) 48,750 shares of our common stock,
representing a price of $0.80 per share, and (ii) a warrant to purchase 36,563 shares of our common
stock at an exercise price of $1.40 per share in return for the cancellation of $39,000 of debt
owed by us to BVL resulting from its prior discharge of certain of our accounts payable. The
warrant will have a term of seven years. On December 18, 2007, the last trading day immediately
prior to the execution of the Agreement to Convert Debt, the last sale price of our common stock
was $0.92.
Blackwood Capital Ltd. (“BCL”) is a Gibraltar chartered company owned by a family trust the
beneficiaries of which are the members of the Taylor Kimmins family, and Mr. Andrew Taylor Kimmins
is an authorized signatory. On January 15, 2008, the Company entered into a consulting agreement
with BCL effective September 1, 2007, for a term of one year, which can be terminated by either
party on 45 days notice, for cash compensation of $15,000 per month, plus expense reimbursement. In
addition, the Company issued a warrant for the purchase of 1,500,000 shares of our common stock at
an exercise price of $1.05 per share. The term of the warrant is four years and the warrant has a
cashless exercise provision, at the holder’s election, such that fewer than 1,500,000 shares may be
issued upon full exercise. On January 15, 2008, the closing price of our common stock was $0.82.
On March 11, 2008, BVL purchased an additional 566,038 shares of our common stock for $300,000.
On April 17 2008, BVL purchased 200,000 shares of our common stock for $150,000.
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For purposes of determining ownership and control, both BVL and BCL are deemed to be affiliates and
therefore are combined. As of March 31, 2008, the Company had 9,424,214 shares of common stock
outstanding. If all of the shares of common stock, including those represented by warrants or
options, were issued as a result of the approval of items 1 through 11 for the 14-C approved by
shareholders on May 20, 2008, the Company would have a total of 30,455,969 shares of common stock
outstanding. Of this amount, BVL would own 7,655,028 shares, or approximately 25.1%, of our common
stock, DK True Energy Development Ltd. would own 5,250,000 shares, or approximately 17.2% of our
common stock and BCL (an affiliate of BVL) would own 1,500,000 shares, or approximately 5% of our
common stock. Collectively, then, these entities would own a total of 14,405,028 shares, or
approximately 47.3% of our outstanding common stock
Lothian Oil Inc. Bankruptcy Release of Controlling Interest
On June 6, 2007, a Company subsidiary entered into an agreement with Lothian Oil, Inc., our
then-largest shareholder, whereby the Company agreed to transfer restricted securities to Lothian
in full and final payment of a loan with an outstanding balance of $2,009,917 in principal and
$434,111 in accrued interest.
On June 13, 2007 our then-largest shareholder, Lothian Oil Inc. (“Lothian”), filed a petition under
Chapter 11 of the U.S. Bankruptcy Code.
On July 30, 2007, the Lothian Bankruptcy Court entered its Order Granting Motion of Lothian Oil
Inc. to Approve Compromise and Settlement of Claims By and Between Lothian Oil Inc. and Walter G.
Mize (Docket No. 217), approving the Mize Settlement, and its Amended Order Granting Motion of
Lothian Oil Inc. to Approve Compromise and Settlement Claims By and Between Lothian Oil Inc. and
United Heritage Corporation (Docket No. 216), approving the Final United Heritage Corporation
Settlement.
The Mize Settlement settled a dispute between Mize and the Debtors, regarding ownership of stock
issued by our predecessor corporation, United Heritage Corporation, and the enforcement of a
promissory note in the amount of in excess of $5.3 million, allegedly due from Lothian Oil. The UHC
Settlement occurred on July 31, 2007, (“the Mize/ United Heritage Corporation closing”). At the
Mize/ United Heritage Corporation Closing: (i) Lothian Oil assigned shares and warrants in United
Heritage Corporation valued at approximately $2.6 million dollars to Mize, (ii) Mize executed a
complete release of any and all secured and unsecured claims against Lothian Oil and made a payment
to Lothian oil in the amount of $250,000, (iii) Lothian Oil released United Heritage Corporation
from its obligations for intercompany debts totaling approximately $1.8 million dollars, and (iv)
United Heritage Corporation and Lothian Oil executed mutual releases of all claims against the
other.
$600,000 Private Placement of Common Stock with Warrants
On November 27, 2007 the Company completed a $600,000 private placement to accredited investors,
for the issuance of 800,000 common shares and 5 year callable warrant to purchase up to 400,000
shares, at an exercise price of $1.40 per share. The warrant agreement has a cashless exercise
provision, at the election of the holder, such that fewer shares than the face amount of the
warrants may be issued upon full exercise. The net proceeds were approximately $503,909, and debt
conversion by BVL of $96,000.
Conversion of Debt to Equity
On December 19, 2007, the Company entered into an Agreement to Convert Debt with Richardson &
Patel, LLP pursuant to which Richardson & Patel LLP agreed to accept (i) 296,856 shares of our
common stock and (ii) a warrant for the purchase of 222,642 shares of our common stock in full
payment of $237,485.15 in legal services previously rendered. The warrant has an exercise price of
$1.40 per share; a term of seven years and a cashless exercise provision, at the holders’ election,
such that fewer than 222,642 shares may be issued upon full exercise. The debt was converted at the
rate of $0.80 per share. On December 18, 2007, the closing price of our common stock was $0.92.
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On December 19, 2007, the Company entered into an Agreement to Convert Debt with Blackwood Ventures
LLC, our largest shareholder, pursuant to which Blackwood Ventures LLC agreed to accept (i) 48,750
shares of our
common stock, representing a price of $0.80 per share, and (ii) a warrant to purchase 36,563 shares
of our common stock at an exercise price of $1.40 per share in return for the cancellation of
$39,000 of debt owed by us to Blackwood resulting from its prior discharge of certain of our
accounts payable. The warrant will have a term of seven years. On December 18, 2007, the last
trading day immediately prior to the execution of the Agreement to Convert Debt, the last sale
price of our common stock was $0.92.
Conversion of “Put” Liability
On January 15, 2008, the Company entered into an agreement to convert an $833,335 option put right
held by Walter G. Mize (“Mize”) into 1,111,113 shares of the Company’s common stock and a
three-year warrant to purchase 555,556 shares of the Company’s common stock at an exercise price of
$1.50 per share (the “Mize Agreement”). Mize’s obligation to convert his put right into securities
of the Company is conditioned on the Company obtaining a favorable decision by the Panel as to the
continued listing of the Company’s common stock on the Nasdaq Capital Market. The conditional
favorable ruling was announced in a press release on March 18, 2008.
NASDAQ Compliance
On November 30, 2007 we received a letter from Nasdaq noting our failure to regain compliance by
September 30, 2007 and indicating that trading of our common stock was to be suspended at the
opening of business on December 11, 2007 unless we appealed the determination. We appealed the
determination and a hearing took place before the Nasdaq Hearings Panel (the “Panel”) on January
17, 2008. As of December 31, 2007, as reported in our Quarterly Report on Form 10-QSB for the
quarter then ended, our shareholders’ equity amount complies with Marketplace Rule 4310(c)(3) and
we believe that we now have the capacity to maintain compliance with this requirement. On March
17, 2008 we received a letter from the Panel indicating that the Panel has determined to continue
the listing of our common stock, subject to the condition that our Annual Report on Form 10-K for
the fiscal year ended March 31, 2008 demonstrates compliance with the $2.5 million minimum
shareholders’ equity requirement. If we fail to demonstrate shareholders’ equity of $2.5 million
or greater, the Panel will promptly conduct a hearing with respect to the failure and our
securities may be immediately delisted from The Nasdaq Stock Market. However, our audited
financial statements for the period ending March 31, 2008 state that the Company had shareholder
equity of $3,116,495 which exceeds the threshold required in the Nasdaq notice. If we fail to
comply with any requirement for continued listing other than shareholders’ equity, we will be
provided with written notice of the deficiency and an opportunity to present a definitive plan to
regain compliance. The Panel rendered a conditional determination in our favor on or about March
18, 2008, with respect to our continued listing.
On January 31, 2008 we received a letter from Nasdaq indicating that, for a period of 30
consecutive business days, the bid price of our common stock closed below the minimum $1.00 per
share requirement for continued inclusion under Marketplace Rule 4310(c)(4). In a letter dated
June 13, 2008, Nasdaq informed us that we were compliant with Marketplace Rule 4310(c)(4) and that
Nasdaq was closing the matter.
Black Sea Investments, Ltd. Lawsuit.
On November 21, 2007, a jury in Johnson County, Texas rendered a verdict in a trial in favor of the
Company against Black Sea Investments, Ltd., Bradford A. Phillips, Clifton Phillips, Ryan T.
Phillips, and F. Terry Shumate. On February 15, 2008, the 249th District Court in
Johnson County, Texas entered a judgment in the amount of $4,020,551.05 with interest accruing at a
rate of $583.01 per day until paid against these defendants in favor of the Company.
On March 17, 2008, the individual defendants filed a motion for new trial which was overruled by
operation of law on April 30, 2008. The individual defendants then timely filed a Notice of Appeal
for the matter to be heard by Texas’ Tenth Court of Appeals in Waco, Texas. In Texas Appellants
must file an appeal bond to appeal in the full amount of the judgment plus costs and interest for
the anticipated appeal length, but the bond may also be limited to one-half of an individual
appellant’s net worth. Appellants seeking to file a bond based on net worth must also file an
affidavit in support which may be contested by the Company. The appellate court also has the
discretion to set an appeal bond in an amount that would not cause substantial harm to an
individual after notice and hearing.
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The Company can provide no assurance that this judgment will withstand appeal or that, if upheld,
the Company will ever realize the collection of money from this judgment. The Company shares in
these proceeds of the collection of this judgment with its attorney, and 50% of the net balance
with the Walter Mize Estate.
Management Changes
On May 16, 2007, Mr. Franz A. Skyranz was appointed as a director of the Company and the chair of
the Audit Committee.
On July 31, 2007, Walter G. Mize acquired stock held in the Company by Lothian Oil, Inc. and Walter
Mize, Joe Martin, Dean Boyd, Bill Wilkins, and Charles Garrett were appointed to the Board of
Directors.
On October 2, 2007, Blackwood Ventures, LLC (BVL) acquired all of Walter G. Mize’s securities in
the Company, which included a majority of the Company’s outstanding shares.
On October 8, 2007, C. Scott Wilson and Kenneth Levy were terminated from their positions as our
chief executive officer and chief financial officer and C. Scott Wilson, Thomas Kelly, Raoul
Baxter, and Kenneth Levy resigned from the Board of Directors.
On October 8, 2007, Joseph F. (“Chip”) Langston was appointed as our interim Chief Executive
Officer, interim President and interim Chairman of the Board of Directors and as our Chief
Financial Officer and Treasurer. Also, Theodore D. Williams and Paul K. Hickey were appointed to
the Board of Directors.
On or about November 1, 2007, Paul Watson was appointed the Company’s Chief Operating Officer and
Geoffrey Beatson was appointed Vice-President, Engineering and Production.
On November 26, 2007, Messrs. Mize, C. Dean Boyd, Joe Martin, Charles Garrett and Bill Wilkins
resigned from our board of directors. (Note Change of Control discussion below).
On January 15, 2008 Mr. Watson was appointed Chief Executive Officer and Chairman of the Board of
directors. At this time, Joseph F. Langston stepped down as Chief Executive Officer and Chairman of
the Board, but remained the Company’s President, Chief Financial Officer and Secretary.
On March 3, 2008, Mr. Paul K. Hickey was appointed to serve as a member of our board of directors.
Mr. Hickey was also appointed to serve as Chairman of our Audit Committee, while Mr. Skyranz along
with Mr. Williams serve as independent directors on the Audit Committee.
On March 28, 2008, Messrs Watson, Langston, Skryanz, Williams and Hickey were approved by a
majority vote of the shareholders to serve as Directors.
On April 15, 2008 Geoffrey Beatson was terminated by the Company effective as of February 1, 2008.
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The 2008 Fiscal Year
On-Going Operations
Through our subsidiary, UHC Petroleum Corporation, we operate the Wardlaw Field, located
approximately 28 miles west of Rocksprings in Edwards County, Texas. The Wardlaw Field lies in the
southeast portion of the Val Verde Basin with oil production from the field coming from the Glen
Rose formation at a depth of less than 600 feet. The leaseholds consist of approximately 10,502
gross acres of which approximately 10,360 gross acres are undeveloped. The leaseholds include 130
wellbores. Of these wells, approximately 44 are currently capable of producing. We are in the
process of evaluating the remaining wells. Petroleum has a gross working interest of 100% and a net
revenue interest of 75% of the Wardlaw Field production. The original lease term was extended by a
period of 90 days each time a well was drilled, therefore, based on prior drilling, the primary
lease term is currently extended to 2013.
Production in the Wardlaw Field is done via primary production methods and using nitrogen injection
under pressure and progressive cavity pumps. Our goal has been to develop the property to fully
exploit all of their resources. Previously, the Company has not been able to do properly develop
the property because of a lack of working capital and newly developed technological and chemical
invocations.
The following table shows the total net oil and gas production from Texas for each of the three
most recent fiscal years. Oil production is shown in barrels (Bbl), and natural gas production is
shown in thousand cubic feet (Mcf). As of March 30, 2007 we no longer owned the New Mexico
properties.
| March 31, | ||||||||||||
| Area | 2008 | 2007 | 2006 | |||||||||
Texas |
||||||||||||
Oil |
1,255 Bbl | 1,402 Bbl | 1,486 Bbl | |||||||||
Gas |
— | — | — | |||||||||
New Mexico |
||||||||||||
Oil |
||||||||||||
Gas |
||||||||||||
The following table illustrates the average sales price and the average production (lifting) costs
per barrel and per thousand cubic feet for each of the three most recent fiscal years. As of March
30, 2007 we no longer owned the New Mexico properties.
| March 31, | ||||||||||||||||||||||||
| 2008 | 2007 | 2006 | ||||||||||||||||||||||
| Items | Oil | Gas | Oil | Gas | Oil | Gas | ||||||||||||||||||
Texas |
||||||||||||||||||||||||
Avg. Sales Price/Unit |
$ | 79.09 | — | $ | 38.33 | — | $ | 36.80 | — | |||||||||||||||
Avg. Prod. Cost/Unit |
$ | 135.87 | — | $ | 144.79 | — | $ | 30.11 | — | |||||||||||||||
New Mexico |
||||||||||||||||||||||||
Avg. Sales Price/Unit |
||||||||||||||||||||||||
Ave. Prod.Cost/Unit |
||||||||||||||||||||||||
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The following table illustrates the results of the drilling activity during each of the three most
recent fiscal years. As of March 30, 2007 we no longer owned the New Mexico properties.
| March 31, | ||||||||||||||||||||||||
| 2008 | 2007 | 2006 | ||||||||||||||||||||||
| Net | Dry | Net | Dry | Net | Dry | |||||||||||||||||||
| Wells Drilled | Productive Holes | Productive Holes | Productive Holes | |||||||||||||||||||||
Texas |
||||||||||||||||||||||||
Exploratory |
— | — | — | — | — | — | ||||||||||||||||||
Development |
— | — | — | — | — | — | ||||||||||||||||||
New Mexico |
||||||||||||||||||||||||
Exploratory |
— | — | — | — | — | — | ||||||||||||||||||
Development |
— | — | — | — | — | — | ||||||||||||||||||
TOTAL |
||||||||||||||||||||||||
Exploratory |
— | — | — | — | — | — | ||||||||||||||||||
Development |
— | — | — | — | — | — | ||||||||||||||||||
The following table illustrates estimates of the proved oil and gas reserves, for the Wardlaw
Field, Edwards County, Texas, as of March 31, 2007 and March 31, 2008.
| Gas | ||||||||
| Oil Reserves | Reserves | |||||||
| (Bbls) | (Mcf) | |||||||
March 31, 2007 |
— | — | ||||||
Estimated Proved Reserves |
— | — | ||||||
Extensions, additions and discoveries |
— | — | ||||||
Revisions to previous estimates |
528,017 | — | ||||||
Production |
(1,255 | ) | — | |||||
March 31, 2008 |
||||||||
Estimated Proved Reserves(1) |
526,762 | — | ||||||
We have no oil and gas reserves or production subject to long-term supply, delivery or similar
agreements. Estimates of our total proved oil and gas reserves have not been filed with or included
in reports to any federal authority or agency other than the Securities and Exchange Commission.
The following table illustrates the total gross and net oil and gas wells in which Petroleum had an
interest at March 31, 2008. The existence of a productive well does not mean that the well is
currently producing or will continue to be productive. The Company has a 100% Working Interest and
a 75% Net Revenue Interest in the Wardlaw Lease, Edwards County, Texas.
| Productive Wells | ||||||||||||||||
| Gross | Net | |||||||||||||||
| Area | Oil | Gas | Oil | Gas | ||||||||||||
Texas |
44 | 0 | 33 | 0 | ||||||||||||
TOTAL |
44 | 0 | 33 | 0 | ||||||||||||
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The following table illustrates the gross and net acres of developed and undeveloped gas and
oil leases held by Petroleum at March 31, 2008.
| Developed Acres | Undeveloped Acres | |||||||||||||||
| Area | Gross | Net | Gross | Net | ||||||||||||
Texas |
142 | 107 | 10,360 | 7,770 | ||||||||||||
TOTAL |
142 | 107 | 10,360 | 7,770 | ||||||||||||
Competition
The oil and gas industry is highly competitive. We compete with other oil and gas companies and
investors in searching for, and obtaining, future desirable prospects, in securing contracts with
third parties for the development of oil and gas properties, in securing contracts for the purchase
or rental of drilling rigs and other equipment necessary for drilling operations, and in purchasing
equipment necessary for the completion of wells, as well as in the marketing of any oil and gas
which may be discovered. Many of our competitors are larger than we are and have substantially
greater access to capital and technical resources than we do, giving them a substantial competitive
advantage. We do not represent a significant presence in the oil and gas industry.
Regulation
As described below, oil and gas operations are subject to various types of regulation by state and
federal agencies. Legislation affecting the oil and gas industry is under constant review for
amendment or expansion. Also, numerous departments and agencies, both federal and state, are
authorized by statute to issue rules and regulations binding on the oil and gas industry and its
individual members, some of which carry substantial penalties for failure to comply. The regulatory
burden on the oil and gas industry increases the cost of doing business and, consequently, affects
our profitability.
State Regulation of Oil and Gas Production. The State of Texas regulates the production and
sale of natural gas and crude oil, including requirements for obtaining drilling permits, the
method of developing new fields, the spacing and operation of wells and the prevention of waste of
oil and gas resources. In addition, most states regulate the rate of production and may establish
maximum daily production allowable for wells on a market demand or conservation basis. To date, we
have not found these regulations burdensome to comply with.
Environmental Regulations. Our activities are subject to federal and state laws and
regulations governing environmental quality and pollution control. These regulations have a
material effect on our operations, but the cost of such compliance has not been material to date.
However, we believe that the oil and gas industry may experience increasing liabilities and risks
under the Comprehensive Environmental Response, Compensation and Liability Act, as well as other
federal, state and local environmental laws, as a result of increased enforcement of environmental
laws by various regulatory agencies. As an “owner” or “operator” of property where hazardous
materials may exist or be present, we, like all others in the petroleum industry, could be liable
for fines and/or “clean-up” costs, regardless of whether the release of a hazardous substance was
due to our conduct.
Employees
As of March 31, 2008, we had five full time employees, four in the field and one in NYC. In
addition, we have consulting agreements with four officers or employees which account for over half
or more of their business activity. We also use two outside consultants, not including legal and
investment banking advisors.
As of March 31, 2008, we had five full time employees, four in the field and one in NYC. In
addition, we have consulting agreements with four officers or employees which account for over half
or more of their business activity. We also use two outside consultants, not including legal and
investment banking advisors.
ITEM 2. PROPERTIES
On January 15, 2008 we moved our corporate headquarters to Suite 200, 4925 Greenville Avenue,
Dallas, Texas 75206. This is not a long term lease.
Petroleum leases an oil field in Edwards County, Texas consisting of approximately 10,502 gross
acres of which 7,770 net acres are undeveloped. Pursuant to the leases, Petroleum receives a 100%
gross working interest from
production. The field is located in the southeast portion of the Val Verde Basin, 28 miles west of
the city of Rocksprings, Texas.
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ITEM 3. LEGAL PROCEEDINGS
Black Sea Investments, Ltd. Lawsuit.
On November 21, 2007, a jury in Johnson County, Texas rendered a verdict in a trial in favor of the
Company against Black Sea Investments, Ltd., Bradford A. Phillips, Clifton Phillips, Ryan T.
Phillips, and F. Terry Shumate. On February 15, 2008, the 249th District Court in
Johnson County, Texas entered a judgment in the amount of $4,020,551.05 with interest accruing at a
rate of $583.01 per day until paid against these defendants in favor of the Company.
On March 17, 2008, the individual defendants filed a motion for new trial which was overruled by
operation of law on April 30, 2008. The individual defendants then timely filed a Notice of Appeal
for the matter to be heard by Texas’ Tenth Court of Appeals in Waco, Texas. In Texas Appellants
must file an appeal bond to appeal in the full amount of the judgment plus costs and interest for
the anticipated appeal length, but the bond may also be limited to one-half of an individual
appellant’s net worth. Appellants seeking to file a bond based on net worth must also file an
affidavit in support which may be contested by the Company. The appellate court also has the
discretion to set an appeal bond in an amount that would not cause substantial harm to an
individual after notice and hearing.
The Company can provide no assurance that this judgment will withstand appeal or that, if upheld,
the Company will ever realize the collection of money from this judgment. The Company shares in
these proceeds of the collection of this judgment with its attorney, and 50% of the net balance
with the Walter Mize Estate.
Other
The Company does not have any litigation current or contemplated. However, the Company has
terminated Geoff Beatson, taken issue with various vendors, and has a royalty owner contest its
permit filings with the Texas Railroad Commission. Any of which could result in litigation, which
the Company will vigorously pursue and defend.
The Company had option agreements to ex-employees and directors which exercised at $1.50 and $2.91
exercise prices. These options were modified to extend the expiration date to March 31, 2009, to
add a put feature where the option holder can put the option back to the Company for the difference
between $4.00 per share and the purchase price between April 1, 2008 and April 10, 2008, and to add
a call feature whereby the Company can call the option for the difference between $7.50 and the
purchase price. Since the put feature does not subject the holder to the normal risks of share
ownership, the options the Company has classified the put options as liability awards and recorded
at fair value. A liability and corresponding expense of $2,727,186 has been recorded in the prior
financial statements. A majority of these option puts were exercised. The Company offered the
option put holders the same conversion as Walter Mize elected on January 16, 2008. On July 3,
2008, owners of approximately 54% of these options elected to convert the Company’s put obligation
to restricted common stock at $0.75 per share, subject to a voting trust and first right of refusal
to Blackwood Ventures LLC. Approximately 41% elected to continue the option period until December
31, 2009, for consideration of 10% per annum, payable quarterly with a provision for payment in
kind. Approximately 5% did not make an election and their units are held as current liability
pending resolution. These transactions have not closed, and are contingent upon the completion of
the definitive agreements. Should these transactions close, the Company’s liabilities would be
reduced by $1,166,669.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our annual meeting of shareholders on March 28, 2008. The number of issued and outstanding
shares of the common stock of United Heritage Corporation as of February 19, 2008, the record date
established by the board of directors for determining shareholder eligibility to vote at the
meeting, was 7,246,850. Common stock was the only class of voting securities of United Heritage
Corporation entitled to vote at the meeting.
There were represented personally or by proxy at the meeting shareholders holding an aggregate of
4,158,510 shares of the common stock of United Heritage Corporation, representing approximately
57.38 % percent of the total shares eligible to vote.
The matters voted upon at the meeting included the election of directors, ratification of the
appointment of Hein & Associates, LLP as our independent auditors for the fiscal year ended March
31, 2008. The results of the voting were as follows:
Election of Directors
| Votes | ||||||||
| Name of Nominee | Votes For | Withheld | ||||||
Paul Watson |
4,106,640 | 51,870 | ||||||
Joseph F. (“Chip”) Langston |
4,106,635 | 51,875 | ||||||
Franz A. Skryanz |
4,156,675 | 1,835 | ||||||
Theodore D. Williams |
4,156,683 | 1,827 | ||||||
Paul K. Hickey |
4,156,670 | 1,840 | ||||||
Ratification of Hein & Associates LLP as our independent auditors for the fiscal year ended March
31, 2008.
| For | Against | Withheld | ||||||
4,157,715 |
756 | 39 | ||||||
Shares which abstained from voting as to the proposals, and shares held in “street name” by brokers
or nominees who indicated on their proxies that they did not have discretionary authority to vote
such shares as to the proposals (“broker non-votes”) were counted for purposes of determining
whether the affirmative vote of a majority of the shares was obtained.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market Information
The principal market for our common stock is the Nasdaq Capital Market. Our common stock trades
under the symbol “GLRP.”
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The following table sets forth, for the periods indicated, the high and low sale price per share of
our common stock as reported by Nasdaq.
| High | Low | |||||||
Fiscal Year Ended March 31, 2008 |
||||||||
First Quarter |
$ | 1.08 | $ | .67 | ||||
Second Quarter |
$ | 1.00 | $ | .41 | ||||
Third Quarter |
$ | 1.88 | $ | .75 | ||||
Fourth Quarter |
$ | .81 | $ | .51 | ||||
Fiscal Year Ended March 31, 2007 |
||||||||
First Quarter |
$ | 3.70 | $ | 2.57 | ||||
Second Quarter |
$ | 4.09 | $ | 2.48 | ||||
Third Quarter |
$ | 3.18 | $ | 2.70 | ||||
Fourth Quarter |
$ | 3.15 | $ | .65 | ||||
Shareholders
As of June 30, 2008, there were approximately 1,478 record holders of our common stock. This does
not include an indeterminate number of shareholders whose shares are held by brokers in street
name.
Dividends
We have never declared any cash dividends on our common stock and we do not anticipate declaring a
cash dividend in the foreseeable future.
Sales of Unregistered Securities
Sales of Unregistered Securities
On November 28, 2007 the Company completed the sale and issuance of units having a total gross
value of $600,000 in a private placement to accredited investors (the “November Offering”). Each
unit was comprised of (i) 32,000 shares of the Company’s common stock, par value $0.001 per share,
and (ii) a 5 year callable warrant to purchase up to 52,253 shares of the Company’s common stock,
subject to certain vesting requirements, at an exercise price of $1.40 per share. The warrants may
not be exercised until the Company obtains shareholder approval of their issuance. The Company sold
and issued a total of 21 units at a price of $24,000 per unit, for net cash proceeds of
approximately $504,000. The Company also converted debt in the amount of $96,000 owed to Blackwood,
its largest shareholder, into 4 units. The per share price of the common stock included in the
units was less than the per share book or market value of the Company’s common stock on the date of
sale. No underwriting discounts or commissions were paid in connection with the November Offering.
The Company is obligated to register the shares underlying the warrants, subject to compliance
with Rule 415 promulgated under the Securities Act of 1933, as amended.
On December 19, 2007, the Company entered into an Agreement to Convert Debt with Richardson &
Patel, LLP pursuant to which Richardson & Patel LLP agreed to accept (i) 296,856 shares of our
common stock and (ii) a warrant for the purchase of 222,642 shares of our common stock in full
payment of $237,485.15 in legal services previously rendered. The warrant has an exercise price of
$1.40 per share, a term of seven years and a cashless exercise provision, at the holders’ election,
such that fewer than 222,642 shares may be issued upon full exercise. The debt was converted at the
rate of $0.80 per share. On December 18, 2007, the closing price of our common stock was $0.92.
On December 19, 2007, the Company entered into an Agreement to Convert Debt with Blackwood Ventures
LLC (“BVL”), our largest shareholder, pursuant to which BVL agreed to accept (i) 48,750 shares of
our common stock, representing a price of $0.80 per share, and (ii) a warrant to purchase 36,563
shares of our common stock at an exercise price of $1.40 per share in return for the cancellation
of $39,000 of debt owed by us to BVL resulting from its prior discharge of certain of our accounts
payable. The warrant will have a term of seven years. On December 18, 2007, the last trading day
immediately prior to the execution of the Agreement to Convert Debt, the last sale price of our
common stock was $0.92.
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On January 15, 2008 and as further stated above, the Company entered into an agreement to convert
an $833,335 option put right held by Walter G. Mize (“Mize”) into 1,111,113 shares of the Company’s
common stock and a three-year warrant to purchase 555,556 shares of the Company’s common stock at
an exercise price of $1.50 per share.
On March 11, 2008, BVL purchased an additional 566,038 shares of our common stock at $.53 per
share.
The Company had option agreements to ex-employees and directors which exercised at $1.50 and $2.91
exercise prices. These options were modified to extend the expiration date to March 31, 2009, to
add a put feature where the option holder can put the option back to the Company for the difference
between $4.00 per share and the purchase price between April 1, 2008 and April 10, 2008, and to add
a call feature whereby the Company can call the option for the difference between $7.50 and the
purchase price. Since the put feature does not subject the holder to the normal risks of share
ownership, the options the Company has classified the put options as liability awards and recorded
at fair value. A liability and corresponding expense of $2,727,186 has been recorded in the prior
financial statements. A majority of these option puts were exercised. The Company offered the
option put holders the same conversion as Walter Mize elected on January 16, 2008. On July 3,
2008, owners of approximately 54% of these options elected to convert the Company’s put obligation
to restricted common stock at $0.75 per share, subject to a voting trust and first right of refusal
to Blackwood Ventures LLC. Approximately 41% elected to continue the option period until December
31, 2009, for consideration of 10% per annum, payable quarterly with a provision for payment in
kind. Approximately 5% did not make an election and their units are held as current liability
pending resolution. These transactions have not closed, and are contingent upon the completion of
the definitive agreements. Should these transactions close, the Company’s liabilities would be
reduced by $1,166,669.
On July 11, 2008, the Company agreed in principle on a term sheet with C. Scott Wilson by which Mr.
Wilson’s 500,000 outstanding options would be exchanged for 65,000 restricted common shares. This
transaction is conditional upon negotiating and signing a final options exchange agreement, but the
Company currently anticipates that the transaction is likely to close.
Equity Compensation Plan Information
The 2008 Equity Incentive Plan In January 2008, our board of directors approved and
adopted the United Heritage Corporation 2008 Equity Incentive Plan (the “Plan”). We have reserved
5,000,000 shares of common stock for awards that will be granted from the Plan. The awards are
subject to adjustment in the event of stock dividends, recapitalizations, stock splits, reverse
stock splits, subdivisions, combinations, reclassifications or similar changes in our capital
structure. The Plan became effective upon adoption by the board, and, unless earlier terminated in
accordance with the terms and provisions thereof, will remain in effect for a period of ten years
from the date of adoption. As of March 6, 2008, the last trading day immediately prior to the
Notice Date, the shares of common stock reserved for the Plan had a market value of $0.63 per
share.
During this robust period in the oil and gas industry, it is difficult to hire experience
professionals. Consequently, in May 2008, the Company’s Shareholders approved a Stock Incentive
Plan for the express purpose of providing economic incentives to its officers and employees.
The 2002 Consultant Equity Plan. This plan has not been approved by our shareholders.
Officers and directors of United Heritage are not eligible to receive awards from this plan.
Typically, awards are granted to third parties who render services to us that do not relate to
capital raising or shareholder relations. The term of the plan is 10 years. We have set aside
333,334 shares of our common stock for the purpose of granting awards under this plan. Awards may
consist of options to purchase common stock or grants of common stock. The plan is governed by our
Board of Directors. Within the parameters set by the plan, the Board of Directors decides to whom
awards will be given, the manner of award to be given, the number of shares to be included in an
award, the term of an option, whether or not an award will be subject to vesting conditions and, if
an exercise price or purchase price is to be paid, the Board of Directors establishes the price to
be paid and the manner of acceptable payment. The Board of Directors may amend the plan or
discontinue it. The Board of Directors may modify awards, so long as any such modification is
agreed to by the recipient of the award. We may reserve the right to repurchase grants of
restricted securities that are purchased by a recipient. If we reserve such right and elect to
exercise it, we must pay the greater of fair market
value or the purchase price for the common stock. Alternatively, we may reserve the right to
repurchase the securities by returning the purchase price to the recipient however, this rights
lapse in equal increments over a period of five years. All the shares of common stock that were
reserved for issuance under this plan have been issued.
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Other Plans - The 1995 Stock Option Plan was effective September 11, 1995 and included
66,667 shares of our authorized but unissued common stock. As of March 31, 2006 no awards were
outstanding under this plan. The 1998 Stock Option Plan was effective July 1, 1998 and included
66,667 shares of our authorized but unissued common stock. As of March 31, 2006, there was one
award outstanding under the plan for the right to purchase a total of 66,667 shares. The 2000 Stock
Option Plan of United Heritage Corporation was effective on June 5, 2000 and included 1,666,667
shares of our authorized but unissued common stock. On March 31, 2007, there were 19 awards
outstanding under the plan for the right to purchase a total of 1,658,333 shares.
| Number of securities | Number of securities | |||||||||||
| to be issued upon | Weighted average | remaining available for future | ||||||||||
| exercise of | exercise price of | issuance under the equity | ||||||||||
| outstanding options, | outstanding options | compensation plan (excluding | ||||||||||
| Plan Category | warrants and rights | warrants and rights | securities reflected in column) | |||||||||
| (a) | (b) | (c) | ||||||||||
Shareholder Approved(1) |
1,895,000 | $ | 1.37 | 74,995 | ||||||||
Non-Shareholder
Approved |
0 | N/A | 0 | |||||||||
| (1) | No options have been granted from the 2002 Consultant Equity Plan. However, we have paid
consultants in the past by granting shares of our common stock from the 2002 Consultant Equity
Plan. |
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Management’s discussion and analysis of results of operations and financial condition is based upon
our consolidated financial statements. These statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. These principles require
management to make certain estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate these estimates based on historical experience and
various other assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or conditions.
OVERVIEW
We are an independent producer of natural gas and crude oil based in Dallas, Texas. We produce from
properties we lease in Texas. We acquired our Texas property, which includes 102 wellbores (of
which approximately 44 wells are capable of producing), in February 1997. Our plan has been to
develop these properties by reworking many of the existing wells and drilling additional wells.
However, the revenues we earned did not provide us with enough money to implement our development
plans.
During the 2008 fiscal year, the sale price of oil produced by our properties in Texas increased by
$40.76 a barrel, to $79.09 a barrel, from $38.33 a barrel during the 2007 fiscal year. Production
costs during the 2008 fiscal year decreased from $144.79 a barrel during the 2007 fiscal year to
$135.87 a barrel, as a result of low average daily production rate relative to fixed cost.
Except as otherwise discussed in this Annual Report, we know of no trends, events or uncertainties
that have, or are reasonably likely to have, a material impact on our short-term or long-term
liquidity or on our net sales or revenues from continuing operations.
During
the 2009 fiscal year, our plan is to continue redevelopment of our properties if we are
successful in finding other funding sources or, alternatively, we will seek investors or buyers.
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Going Concern Status
Our financial statements have been prepared on a going concern basis which contemplates the
realization of assets and the liquidation of liabilities in the ordinary course of business. We
have incurred substantial losses from operations and we have a working capital deficit which raises
substantial doubt about our ability to continue as a going concern. We sustained a net loss of
$3,251,650 for the fiscal year ended March 31, 2008 and, as of the same period, we had a working
capital deficit of $2,714,405. We must obtain financing in order to develop our properties and
alleviate the doubt about our ability to continue as a going concern.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles generally accepted
in the United States of America. The reported financial results and disclosures were determined
using the significant accounting policies, practices and estimates described below.
Oil and Gas Properties
Proved Reserves — Proved reserves are defined by the Securities and Exchange Commission as those
volumes of crude oil, condensate, natural gas liquids and natural gas that geological and
engineering data demonstrate with reasonable certainty are recoverable from known reservoirs under
existing economic and operating conditions. Proved developed reserves are volumes expected to be
recovered through existing wells with existing equipment and operating methods. Although our
engineers are knowledgeable of and follow the guidelines for reserves established by the Securities
and Exchange Commission, the estimation of reserves requires engineers to make a significant number
of assumptions based on professional judgment. Reserve estimates have been updated at least
annually and consider recent production levels and other technical information about each well.
Estimated reserves are often subject to future revision, which could be substantial, based on the
availability of additional information including: reservoir performance, new geological and
geophysical data, additional drilling, technological advancements, price changes and other economic
factors. Changes in oil and gas prices can lead to a decision to start-up or shut-in production,
which can lead to revisions to reserve quantities. Reserve revisions in turn cause adjustments in
the depletion rates utilized by the Company. The Company cannot predict what reserve revisions may
be required in future periods.
Depletion rates are determined based on reserve quantity estimates and the capitalized costs of
producing properties. As the estimated reserves are adjusted, the depletion expense for a property
will change, assuming no change in production volumes or the costs capitalized. Estimated reserves
are used as the basis for calculating the expected future cash flows from a property, which are
used to determine whether that property may be impaired. Reserves are also used to estimate the
supplemental disclosure of the standardized measure of discounted future net cash flows relating to
oil and gas producing activities and reserve quantities disclosure in Footnote 20 to the
consolidated financial statements. Changes in the estimated reserves are considered changes in
estimates for accounting purposes and are reflected on a prospective basis.
We employ the full cost method of accounting for our oil and gas production assets, which are
located in the southwestern United States. Under the full cost method, all costs associated with
the acquisition, exploration and development of oil and gas properties are capitalized and
accumulated in cost centers on a country-by-country basis. The sum of net capitalized costs and
estimated future development and dismantlement costs for each cost center is depleted on the
equivalent unit-of-production basis using proved oil and gas reserves as determined by independent
petroleum engineers.
Net capitalized costs are limited to the lower of unamortized cost net of related deferred tax or
the cost center ceiling. The cost center ceiling is defined as the sum of (i) estimated future net
revenues, discounted at 10% per annum, from proved reserves, based on un-escalated year-end prices
and costs; (ii) the cost of properties not being
amortized; (iii) the lower of cost or market value of unproved properties included in the costs
being amortized; less (iv) income tax effects related to differences between the book and tax basis
of the oil and gas properties.
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The ceiling test is affected by a decrease in net cash flow from reserves due to higher operating
or finding costs or reduction in market prices for natural gas and crude oil. These changes can
reduce the amount of economically producible reserves. If the cost center ceiling falls below the
capitalized cost for the cost center, we would be required to report an impairment of the cost
center’s oil and gas assets at the reporting date.
Impairment of Properties — We will continue to monitor our long-lived assets recorded in oil and
gas properties in the consolidated balance sheet to ensure they are fairly presented. We must
evaluate our properties for potential impairment when circumstances indicate that the carrying
value of an asset could exceed its fair value. A significant amount of judgment is involved in
performing these evaluations since the results are based on estimated future events. Such events
include a projection of future oil and natural gas sales prices, an estimate of the ultimate amount
of recoverable oil and gas reserves that will be produced from a field, the timing of future
production, future production costs, and future inflation. The need to test a property for
impairment can be based on several factors, including a significant reduction in sales prices for
oil and/or gas, unfavorable adjustment to reserves, or other changes to contracts, environmental
regulations or tax laws. All of these factors must be considered when testing a property’s
carrying value for impairment. We cannot predict whether impairment charges may be required in the
future.
Revenue Recognition — Oil and gas production revenues are recognized at the point of sale.
Production not sold at the end of the fiscal year is included as inventory.
Income Taxes — Included in our net deferred tax assets are approximately $16.4 million of future
tax benefits from prior unused tax losses. Realization of these tax assets depends on sufficient
future taxable income before the benefits expire. We are unsure if we will have sufficient future
taxable income to utilize the loss carry-forward benefits before they expire. Therefore, we have
provided an allowance for the full amount of the net deferred tax asset. Moreover, our recent
change of majority ownership significantly reduced our ability to carry forward our net operating
losses.
Accounting Estimates — Management uses estimates and assumptions in preparing financial statements
in accordance with accounting principles generally accepted in the United States of America. Those
estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses. In particular, there is
significant judgment required to estimate oil and gas reserves, impairment of unproved properties
and asset retirement obligations. Actual results could vary significantly from the results that
are obtained by using management’s estimates.
OFF-BALANCE SHEET ARRANGEMENTS
It is customary for oil and gas companies to seek partners in developing their assets. In doing so,
you dilute your ownership but share the risk and capital expense of development. Consequently, the
Company has accepted a partner in a portion of the development of its Wardlaw Lease in Edwards
County, Texas.
May 27, 2008, the Company signed a letter of intent (‘LOI’), to sell for $2.5 million a 50% working
interest in 2,560 acres of its Wardlaw Field to Wind Hydrogen Limited (‘WHL’), a publicly-listed
company on the Australian Stock Exchange (‘ASX’). The Wardlaw lease is a 10,502 gross acre field
located in Edwards County, Texas. . In addition, WHL has purchased two options for $150,000 each
to expand the venture for Phase 2 for 2,560 for $3 million for a 50% interest, and for Phase 3 for
an additional 2,560 acres for $4 million for a 50% working interest. The WHL joint venture has
received WHL shareholder approval, preliminary due diligence is completed, and signing of a
definitive Participation Agreements is contemplated by mid July.
This Participation Agreement caused the Company to give up as much as one half interest in 7,680
acres (assuming all three options are exercised by WHL. However, for allowing a partner to earn up
to a 37.5% Net Revenue ownership interest in the entire lease, we were carried, for approximately
$2,500,000 of capital expenditures on Phase 1 of the development project.
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RESULTS OF OPERATIONS
The following selected financial data for the two years ended March 31, 2008 and March 31, 2007 is
derived from our consolidated financial statements. The data is qualified in its entirety and
should be read in conjunction with the consolidated financial statements and related notes
contained elsewhere herein.
| Year Ended | Year Ended | |||||||
| March 31, 2008 | March 31, 2007 | |||||||
Income Data: |
||||||||
Revenues |
$ | 62,025 | $ | 1,014,734 | ||||
Income Profit (Loss) |
$ | (3,251,650 | ) | (11,435,134 | ) | |||
Income Profit (Loss) |
||||||||
Per Share |
$ | (.46 | ) | $ | (1.77 | ) | ||
Weighted Average |
||||||||
Number of Shares |
7,111,758 | 6,446,758 | ||||||
Balance Sheet Data: |
||||||||
Working Capital (deficit) |
$ | (2,714,405 | ) | $ | (1,218,803 | ) | ||
Total Assets |
$ | 6,074,484 | $ | 9,983,559 | ||||
Current Liabilities |
$ | 2,870,071 | $ | 3,427,471 | ||||
Long-Term Debt |
$ | 0 | $ | 2,941,983 | ||||
Shareholders’ Equity |
$ | 3,116,495 | $ | 803,977 | ||||
Combined Results
Our revenues for the 2008 fiscal year were $62,025, a decrease of $952,709 or approximately 94%, as
compared to revenues of $1,014,734 for the 2007 fiscal year. The decrease in sales revenue for the
2008 fiscal year was due primarily to the sale of the New Mexico operations which in turn decreased
the volume of oil sold.
Total operating expenses of $3,558,744 reflects a decrease of $2,309,208, or approximately 39%, for
the 2008 fiscal year as compared to operating expenses of $5,867,952 for the 2007 fiscal year. The
sign